The Central Bank of Solomon Islands (CBSI) Board at its meeting last Tuesday, after considering the developments in the economy during the first six months of the year, has decided to adjust its monetary policy stance over the next six months to a more accommodative monetary policy from the neutral position adopted during the first half of the year.
CBSI in a statement early this week said the decision is appropriately configured to support the economy during the post flood recovery phase.
In announcing the board’s decision, the Governor and Chairman of the Board, Mr. Denton Rarawa explained that the accommodative monetary policy stance will involve reviewing and adjusting several CBSI policies and regulations to foster investment and growth.
Mr Rarawa commented that part of the accommodative stance would be to allow the local currency to move in tandem with the basket of currencies within approved margins to minimise exchange rate misalignments and foster a more balanced growth in trade in the medium term.
Mr Rarawa also announced that the Board decided to maintain the level of Bokolo Bills offered to the market and also the cash requirement ratio of 7.5% of total deposit liabilities.
Mr Rarawa said, based on the developments during the first half of the year, CBSI anticipates that growth in the Solomon Islands economy will be higher than the 0.9% initially forecasted immediately after the April flood.
Growth is expected to be supported by the quick turnaround in agriculture, robust fisheries sector, and uptick in communication and construction activities combined with the post rehabilitation activities by the government in partnership with the development partners.
On the external front, Mr Rarawa said the outlook for gross foreign reserves is positive and expected to rise moderately in 2014 on the back of expected inflows from donors and foreign investments.
The large external inflows combined with private sector credit growth and rising fiscal expenditures are expected to drive monetary growth in 2014.
In view of the domestic and external sector developments, average headline inflation is expected to hover on the upside of the forecasted range of 4%-6% by the end of the year. However, further risks to inflation could come from rising oil prices if the geopolitical tensions in other parts of the world escalate.
The CBSI will continue to monitor key economic aggregates, including price developments and will align its monetary policy decisions accordingly whenever necessary to ensure that prices are stable and macroeconomic fundamentals are supportive of sustainable growth.
